The Northern comparison with the rest of the UK - impact of Covid-19 pandemic on Ireland SMEs: Evidence
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The impact of Covid-19 pandemic on Northern Ireland SMEs: Evidence and comparison with the rest of the UK ERC Research Report March 2021
The impact of Covid-19 pandemic on Northern Ireland SMEs:
Evidence and comparison with the rest of the UK
Dr Hoang Minh Luong1, Lee Hopley2 and Professor Nola Hewitt-Dundas1
1
Queen’s University Belfast
2
Aston Business School
The Enterprise Research Centre is an independent research centre which focusses on
SME growth and productivity. ERC is a partnership between Warwick Business School,
Aston Business School, Queen’s University School of Management, Leeds University
Business School and University College Cork. The Centre is funded by the Economic
and Social Research Council (ESRC); Department for Business, Energy & Industrial
Strategy (BEIS); Innovate UK, the British Business Bank and the Intellectual Property
Office. The support of the funders is acknowledged. The views expressed in this report
are those of the authors and do not necessarily represent those of the funders.
2
TABLE OF CONTENTS
Executive Summary ......................................................................................... 4
1.Introduction ................................................................................................... 6
2.The effect of COVID-19 on the UK private sector in 2020 .......................... 8
3.Northern Ireland’s SMEs ............................................................................. 12
3.1.Performance ........................................................................................... 12
3.2. Additional business challenges .............................................................. 17
3.3.SMEs’ responses about government support ......................................... 18
3.4.SMEs’ changes in businesss trategies.................................................... 19
3.5.SMEs’ digital responses to the Covid-19 pandemic ................................ 21
3.6.SMEs’ approach to ‘Net-zero’ target ....................................................... 25
3EXECUTIVE SUMMARY
The Northern Ireland economy experienced a severe impact as a result of the Covid-19
pandemic. The NI Composite Economic Index (NICEI), a broadly equivalent measure to
GDP, has shown that economic output in NI fell by 14 per cent in the second quarter of
2020, the largest fall in the NICEI since it began records back in 2006. Even though it
has increased by 15.5 per cent in quarter 3 of 2020, it is believed that the third national
lockdown at the beginning of 2021 will deepen the impact. As claimed by a recent BBC
report, the NI economy is expected to experience a challenging first quarter of 2021. 1
It is crucial therefore to have a better understanding of how the economy has coped with
this uncertain and challenging period, especially for the part that is considered to be most
severely affected: small and medium enterprises (SMEs). As reported by Enterprise
Northern Ireland (ENI) in December 2020, 85% of small, micro and self-employed
businesses have been negatively impacted by the Covid-19 pandemic. 2
In this report, we provide some insights into how Northern Ireland’s SMEs have
responded to the Covid-19 pandemic, based on data from the latest wave of ONS BICS
and the new ERC Business Futures Survey. The latter aims to understand the
experiences of SMEs over the past 12 months, including the impact of Covid-19, with
the survey undertaken across the UK at the end of 2020. Six key findings arise from the
research:
1. Data from ONS BICS wave 19 (released on 17 December 2020) confirms that
the effects of the Covid-19 pandemic have been much more severe for small and
medium-sized enterprises, with higher proportions of SMEs reporting very low
cash reserves as well as low confidence in their survival in the near future. Yet
these effects vary across sectors with enterprises in the accommodation and food
services, arts, entertainment and recreation and the other service sectors, being
the most affected.
2. With government employment support, such as the furlough scheme, the effects
of the Covid-19 pandemic on employment are reported to be less severe than
that on business turnover in the ERC Business Futures survey. To support that
position, several SMEs expressed high levels of satisfaction with government
1 BBC - NI economy expected to stall after record growth
2 Newsletter - NI Enterprise Barometer reveals sobering findings due to Covid-19
4support in their responses. Nevertheless, concern remains about Covid-19
restrictions in the next period and over the next few years.
3. Despite Northern Ireland SMEs being more likely than SMEs across the UK to
express serious concern about both the impact of the pandemic and Brexit on
their businesses, our findings suggest that they are coping slightly better in terms
of both turnover and employment. This might be attributable to the fact that our
data reveals that more NI SMEs have increased their use of digital technologies,
in an attempt not only to follow the social distancing and trading restrictions, but
also to ‘catch-up’ with the latest technologies, in which they have historically been
considered to be lagging behind UK peers. In due course, this might increase
their productivity and subsequently reduce the financial impact of the pandemic.
4. Reducing cost or introducing new processes or new digital technologies are
considered to be important for NI SMEs in responding to the pandemic. This is
consistent for SMEs from both Northern Ireland and the rest of the UK.
5. Consistent with the crucial issue about skill shortages in Northern Ireland, NI
SMEs in our data expressed that the lack of digital skills is their main concern in
adopting and implementing additional digital technologies.
6. While the Covid-19 pandemic is a major obstacle for NI SMEs’ environmental
protection plans, other factors such as the lack of information on low carbon
technologies, or the cost of meeting regulations and standards, are also
mentioned by one third of businesses as major challenges. At the same time,
more than 80 per cent of NI SMEs agreed that businesses should spend more
on environmental protection.
51. Introduction
January 2021 and Northern Ireland, as well as almost the whole UK, have been under
the third national lockdown to stop the spread of the coronavirus. The first part of this
year is set to look very different from common expectation even just a month ago.
As the Financial Times editorial board stated on the 5th January 2021: “The darkest hour,
it is said, is always before the dawn. Just when vaccines had brought hope of a gradual
loosening of restrictions and return to some kind of normality within months, the
emergence of at least two more contagious variants of coronavirus means many
populations instead face tighter lockdowns – with all the human and economic damage
they bring”. 3
Undoubtedly, the situation brings the UK economy into a more severe crisis. According
to a report from TUC in December 2020 4, the figures for quarter three (July – September)
of 2020 show the UK economy is still 9.7 per cent below its pre-pandemic levels, more
than double the decline seen in the US and the EU. The Northern Ireland economy has
also experienced a severe impact of the pandemic. The NI Composite Economic Index
(NICEI), a broadly equivalent measure to GDP, has shown that economic output in NI
fell by 14 per cent in the second quarter of 2020, the largest fall in the NICEI since it
began in 2006. Even though it increased by 15.5 per cent in quarter 3 of 2020, the current
lockdown has, no doubt, increased the severity of the impact. 5
The Covid-19 pandemic has had a bigger impact on small and medium-sized enterprises
(SMEs), due mainly to their lack of cash reserves and the nature of their businesses that
is often heavily dependent of face-to-face contact with customers. In a recent article on
BBC News, the Federation of Small Businesses (FSB) warned that: “Without further
government help to cope with the effects of the pandemic, a record 250,000 small
businesses could be lost in the next 12 months”. 6
3
Financial Times - The pandemic’s biggest tests still lie ahead
4
TUC - Impact of Covid-19 and Brexit for the UK economy
5
BBC - NI economy expected to stall after record growth
6
BBC - 'I’m one of those people who’s been left out'
6In this report, using data from wave 19 of the ONS Business Impact of Covid-19 Survey
(BICS) and the new major survey of UK SMEs undertaken by the Enterprise Research
Centre (ERC) at the end of 2020, we present some insights into how the Covid-19
pandemic has affected SMEs. In particular, our data shows that there have been some
important changes in SMEs’ strategies, use of digital technologies, as well as their
attitude towards environmental protection. Some of our main findings are:
• The Covid-19 pandemic has had a huge impact on the UK economy. However,
the effect seems to be much more severe for small and medium-sized
enterprises, with higher proportions of SMEs reporting very limited cash reserves
as well as low confidence in survival in the near future. At the same time, these
effects vary across sectors, with businesses in the accommodation and food
services, arts, entertainment and recreation and the other service sectors being
most affected.
• With government employment support, such as the furlough scheme, the effects
of Covid-19 on employment are reported to be lower than the effects on business
turnover.
• SMEs in Northern Ireland seem to have coped slightly better with the pandemic
as compared to SMEs across the rest of the UK, in terms of both turnover and
employment. It might be attributable to the fact that the pandemic has forced
more NI SMEs to adopt or improve their use of digital technologies, something
which they have lagged behind on. This digital transformation, in turn, might
increase their productivity and potentially lessen the impact of the pandemic.
• Even though many SMEs in Northern Ireland reported high level of satisfaction
with government support, concern remained about the consistency of guidance
and regulations in the next period.
• Reducing cost, introducing new processes or new digital technologies are
considered more important in NI SMEs’ strategies in coping with the pandemic.
• The COVID-19 crisis has had a huge impact on digital transformation of NI SMEs,
with many businesses adopting digital technologies they have never used before
or increasing the use of previously adopted technologies.
• Lack of digital skills is the main concern for NI SMEs’ use and adoption of digital
technologies.
• While the Covid-19 pandemic is confirmed to be a major obstacle for NI SMEs’
environmental protection plan, other factors such as the cost of meeting
regulations and standards, or the lack of information on low carbon technologies,
are mentioned by more than one third of the sample as other major challenges.
• Despite the challenges presented by the pandemic, more than 80 per cent of
SMEs in Northern Ireland agreed that businesses should spend more on
environmental protection.
We believe these understandings are crucial in shaping policy implications for the next
months or years, as the Northern Ireland economy transitions from the pandemic and
towards a more sustainable future.
72. The effect of COVID-19 on the UK private sector in 2020
The ONS Business Impact of COVID-19 Survey (BICS) is a fortnightly survey of
businesses asking questions around the health of the business. Wave 19 (16th to 29th
November 2020, data released on 17 December 2020) is used in the following charts,
the most recent wave available when conducting this analysis.
Figures 1 and 2 show data on how long businesses think their cash reserves will last by
sector and by size, respectively. From Figure 1, it can be seen that over 50 per cent of
businesses in the accommodation and food services, arts, entertainment and recreation
and the other service sectors stated that they only expect cash reserves to last for up to
six months. Over 15 per cent of businesses in the accommodation and food service
sector had either no cash reserves or less than one month of cash reserves. When
looking at all industries, just under 30 per cent had up to three months of cash reserves.
Looking at the breakdown by business size in Figure 2, the highest percentage of firms
with no cash reserves, at nearly 10 per cent, are the smallest firms (0-9 employees) and
over 50 per cent of what we categorize as small firms in this report (with less than 50
employees) have six months or less cash reserves.
8Figure 1: Business cash reserves by sector
Source: ONS BICS Wave 19
Question: How long do you think your business's cash reserves will last?
0% 20% 40% 60% 80% 100%
Manufacturing
Water Supply, Sewerage, Waste Management And Remediation…
Construction
Wholesale And Retail Trade; Repair Of Motor Vehicles And…
Transportation And Storage
Accommodation And Food Service Activities
Information And Communication
Real Estate Activities
Professional, Scientific And Technical Activities
Administrative And Support Service Activities
Education
Human Health And Social Work Activities
Arts, Entertainment And Recreation
Other Service Activities
All Industries
No cash reserves Less than 1 month 1 to 3 months 4 to 6 months More than 6 months Not sure
Figure 2: Business cash reserves by firm size
Source: ONS BICS Wave 19
Question: How long do you think your business's cash
reserves will last?
0% 20% 40% 60% 80% 100%
5.5%
0-9 9.6% 26.5% 15.0% 24.4% 19.0%
4.7%
10 - 49 5.7% 27.6% 17.6% 27.0% 17.5%
3.2%
50 - 99 3.6% 23.6% 16.5% 35.5% 17.6%
2.9%
100 -249 2.8% 18.6% 17.1% 41.1% 17.5%
3.3%
250 + 3.5% 19.9% 14.5% 39.3% 19.5%
3.4%
All Size Bands Excluding 0 - 9 3.8% 21.6% 15.8% 36.9% 18.5%
3.6%
All Size Bands 4.4% 22.1% 15.7% 35.7% 18.5%
No cash reserves Less than 1 month 1 to 3 months
4 to 6 months More than 6 months Not sure
9BICS also captures data on how much confidence businesses have that they will survive
the next 3 months. Figure 3 shows this by sector that both the accommodation and food
service sector and other services sector show the least confidence in surviving. The
accommodation and food service sector also had the highest percentages, at more than
7 per cent, of those stating that they had no confidence in survival and approximately 21
per cent of those stating low confidence in surviving in the next three months. In contrast,
real estate, human health and social work sectors showed the highest levels of
confidence.
Figure 4 shows the confidence in survival by firm size with it being unsurprising that
larger firms have higher levels of confidence than smaller firms. In addition, the smallest
firms (0-9 employees) were the most uncertain about survival at 8.6 per cent.
The impact of the pandemic varies by sector and firm size. Based on BICS data, the
accommodation and food service sector and other service sector appear to be most
severely impacted by the pandemic, with low cash reserves and low confidence in
survival. Concerning firm size, small firms (less than 50 employees) show the least
confidence of surviving and have low cash reserves.
Overall, when we combine the evidence on cash reserves with the fact that 14 per cent
of firms reported that their operating costs are currently exceeding turnover, then it is
unsurprising that confidence levels are low. Businesses trading with diminishing cash
reserves are at a clear risk of insolvency and bankruptcy. Grossing these figures up
using the BEIS Business Population estimates we can calculate that around 200,000
private sector firms across the UK could be at risk. Although the vast majority will be
micro-enterprises, the job losses associated with this scale of business closure will be
considerable.
10Figure 3: Business confidence in survival by sector
Source: ONS BICS Wave 19
Question: How much confidence does your business have that it will survive
the next three months?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Manufacturing
Water Supply, Sewerage, Waste Management And…
Construction
Wholesale And Retail Trade; Repair Of Motor…
Transportation And Storage
Accommodation And Food Service Activities
Information And Communication
Real Estate Activities
Professional, Scientific And Technical Activities
Administrative And Support Service Activities
Education
Human Health And Social Work Activities
Arts, Entertainment And Recreation
Other Service Activities
All Industries
High confidence Moderate confidence Low confidence No confidence Not sure
Figure 4: Business confidence in survival by firm size
Source: ONS BICS Wave 19
Question: How much confidence does your business have
that it will survive the next three months?
0% 20% 40% 60% 80% 100%
2.9%
0-9 42.0% 37.0% 9.6% 8.6%
1.7%
10 - 49 47.9% 38.7% 7.0% 4.7%
3.9%
50 - 99 61.1% 29.9% 4.2%
2.4%4.8%
100 -249 69.6% 22.8%
5.5%
250 + 64.2% 26.5% 3.1%
1.5%
All Size Bands Excluding 0… 50.6% 36.8% 6.4% 4.7%
2.7%
All Size Bands 42.9% 36.9% 9.3% 8.2%
High confidence Moderate confidence Low confidence No confidence Not sure
113. Northern Ireland’s SMEs
In Autumn 2020 the Enterprise Research Centre (ERC) launched a new major survey of
UK SMEs - the Business Futures Survey. This survey sought to understand the
experiences of SMEs over the past 12 months and the impact on them of the COVID-19
pandemic. Data was collected from 1,000 SMEs across the UK.
3.1. Performance
Consistent with a range of other data sources (such as the ONS’s BICS), the Business
Futures Survey also finds that a balance of SMEs has seen a deterioration in both
employment and turnover over the past year.
More businesses have experienced a decline in turnover than employment (likely a
consequence of employment support provided through the Coronavirus Job Retention
Scheme). Disaggregating this further, SMEs in Northern Ireland seem to have coped
slightly better with the effects of the pandemic than SMEs from the rest of the UK, even
though the trend is highly similar (Figure 5). For instance, data on turnover shows that
38 per cent of Northern Ireland SMEs reported decreasing turnover over the past 12
months, as compared to 45.5 per cent for SMEs from the rest of the UK. On the other
hand, 32 percent of SMEs in Northern Ireland reported an increase in turnover,
compared to 28 per cent in the rest of the UK.
With regards to firm size, Figure 6 indicates that for Northern Ireland SMEs, a slightly
higher proportion of small businesses (39 per cent of businesses with up to 49
employees) seeing a decline in their turnover compared with medium firms (36 per cent
of businesses with 50 to 249 employees). Employment, in the past year, has fallen in
approximately 25 per cent of both small and medium-sized enterprises.
12Figure 5: Change in SME turnover and employment in the previous 12 months: NI
versus the rest of the UK
Source: ERC Business Futures Survey 2020
45.50%
The rest of UK 26.67% 27.83%
Turnover
38.30%
NI 29.61% 32.09%
30.43%
Employment
The rest of UK 52.51% 17.06%
25.56%
NI 55.18% 19.26%
0% 20% 40% 60% 80% 100%
Decreased Stay the same Increased
Figure 6: Change in Northern Ireland SME turnover and employment in the
previous 12 months: Small versus medium firms
Source: ERC Business Futures Survey 2020
36.81%
Medium firms 29.55% 33.63%
Turnover
39.64%
Small firms 28.93% 31.43%
24.87%
Medium firms 52.22% 22.90%
Employment
25.31%
Small firms 57.71% 16.98%
0% 20% 40% 60% 80% 100%
Decreased Stay the same Increased
13However, while it is clear from Figures 5, 6 and 7 that the net effect of events in 2020
have been negative for SME employment and turnover, some businesses have achieved
growth, either as their sectors remained somewhat untouched by the effects of the
pandemic or new opportunities emerged.
While the survey reveals relatively small differences in the change in business metrics
by size, Figure 7 confirms the trends seen in other surveys of a somewhat larger impact
on service sectors. The public health response to the COVID-19 pandemic has had a
larger effect on consumer-facing industries such as accommodation, food service and
recreation as businesses have responded to social distancing requirements and, in some
parts of the country, prolonged shutdowns. In our survey, 40 per cent of service
businesses in Northern Ireland had seen a fall in turnover compared with 35 per cent of
production businesses. The figures for the rest of the UK sample are 48 and 39 per cent,
respectively.
A more granular sector analysis shows the stark difference across sub-sectors, with less
than 20 per cent of NI SMEs in health and social work reporting declining turnover
compared with more than three quarters (77 per cent) of NI SMEs in accommodation
and food service sector.
14Figure 7: Change in Northern Ireland SME turnover and employment in the past 12
months: Firms in services sectors versus production sectors
Source: ERC Business Futures Survey 2020
35.37%
Production 46.08% 18.55%
Turnover
40.02%
Services 22.96% 37.02%
16.03%
Production 65.32% 18.66%
Employment
28.55%
Services 52.36% 19.09%
0% 20% 40% 60% 80% 100%
Decreased Stay the same Increased
Furthermore, ERC’s Business Survey also give SMEs a chance to state their own
concerns about different impact of the Covid-19 pandemic. Figure 8 and 9 present some
of the main impacts distilled and grouped by SMEs’ responses.
Figure 8: Northern Ireland SMEs’ reflections on Covid-19 impacts (percentage of
responses)
Source: ERC Business Futures Survey 2020
Direct negative impact on business 33.75%
38.42%
External barriers 26.61%
21.18%
Future risks 17.60%
33.98%
Positive impact on business 10.40%
15.39%
Other 8.63%
8.66%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Medium firms Small firms
15Figure 9: Northern Ireland SMEs’ reflections on Covid-19 impacts (percentage of
responses)
Source: ERC Business Futures Survey 2020
Direct negative impact on business 35.05%
37.32%
External barriers 12.27%
27.44%
Future risks 25.69%
28.19%
Positive impact on business 12.24%
13.22%
Other 7.87%
8.98%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Production Services
Unsurprisingly, around 35 per cent of NI SMEs stated their concern about the direct
negative impacts of the Covid-19 pandemic, including general reduction/slowdown in
business, extra expense due to PPE/shielding/social distancing measures, etc. The
direct impact is slightly higher for small enterprises (less than 50 employees) or SMEs in
service sectors.
In addition, the survey data shows that it is not just the direct impact of a loss of sales
and temporary closures that are affecting business owners. Almost a fifth of respondents
cited external barriers to operating normally. This included access to finance, problems
with supply chains and requirements to invest in business premises to make them
COVID-secure. For example:
“A lot of people are on furlough and there have been some redundancies.
Our debt risk has gone up. Also our late payments has gone up … and there's
just uncertainty.”
“Supply chains have broken down and it's difficult to get supplies. Prices are
increasing.”
16As noted above, depending on the nature of the crisis, some sectors are better positioned
to weather downturns than others. Crises can also provide opportunities for businesses
that are nimble and can pivot to take advantage of them. Just over a fifth of respondents
said that they had something positive to take away from their experience of 2020. For
example:
“Turnover has increased, the pandemic has impacted us positively.”
“We were affected first few months but then our business boomed.”
There was, nevertheless, a strong message of uncertainty about the future from a further
fifth of respondents:
“We are unable to optimise the business to its full potential. We had to close
for 4 months and now work with a reduced capacity. There is a lot of
uncertainty about going forward and the future due to the pandemic.”
“Lockdown restricted movement and the ability to work. This resulted in a
major negative impact on us. The future of the business will depend on how
bad the pandemic is.”
3.2. Additional business challenges
Inevitably, the impact of the COVID-19 pandemic has been the dominant headwind for
many businesses in 2020. However, it is not the only challenge for SMEs. Our Business
Future Survey also reveals that some related challenges in dealing with the virus, such
as social distancing regulations, are also concerning businesses. For instance,
approximately 46 per cent of SMEs in both Northern Ireland and the rest of the UK
reported that social distancing regulations are another obstacle to business success. In
addition, uncertainty due to Brexit and a related issue of regulations or red tape, are
some of the other issues facing SMEs. Unsurprisingly, the most marked difference in
Figure 10 relates to the uncertainty associated with Brexit, where more than half of
Northern Ireland’s SMEs (54 per cent) considered it as a major challenge, compared to
41 per cent of SMEs in the rest of the UK reported the same concern. A similar pattern
is evident for regulations or red tape. As the ERC Business Futures survey was
conducted prior to when the trade deal was agreed, these figures, no doubt, reflect
17SMEs’ serious concerns about the uncertainties of Brexit with all of its new
arrangements.
Figure 10: Obstacles to business success (percentage of responses)
Source: ERC Business Futures Survey 2020
Uncertainty about Brexit 41.06%
53.57%
Late payment 33.99%
33.24%
Liquidity or cashflow 39.22%
35.51%
Competition in the market 38.18%
38.42%
Availability or cost of suitable premises 17.12%
13.81%
Regulations or red tape 39.84%
53.77%
Unable to find the right skills 30.46%
36.14%
Economic uncertainty due to Covid-19 72.84%
72.31%
Social distancing regulations 46.00%
46.42%
Taxation: VAT, PAYE 35.07%
41.58%
Obtaining finance 16.03%
22.12%
0% 10% 20% 30% 40% 50% 60% 70% 80%
The rest of UK Northern Ireland
3.3. SMEs’ responses about government support
Data from the ERC Business Futures Survey reports a number of positive responses
with regards to government support, such as:
“… There's been an injection from the government which is brilliant. There's
a new scheme coming in too and we think we'll be okay through the winter.”
“Sales have decreased which has been assisted by government. Local
government has helped with funding.”
However, SMEs remained concerned about what will happen in the near future. For
them, one of the key factors they worry about is the consistency of the government
guidance and leading direction. For instance:
18“It’s a very challenging time. As a healthcare business we would not stop,
pandemic or not. It would be helpful if the government guidelines were
consistent”
3.4. SMEs’ changes in business strategies
Undoubtedly, these obstacles have caused some changes in NI SMEs’ strategies, in
order to cope with the uncertain and challenging environment and regulations. Figure 11
shows that NI SMEs consider the tasks of reducing costs (76 per cent), introducing new
digital technologies (64 per cent) and introducing new processes (70 per cent) to be
more the most important challenges. Notably, more than half of those surveyed SMEs in
Northern Ireland stated that their strategies towards reducing environmental impact have
remained the same, with only one fifth of the sample considering it to be a less important
strategy in the context of the pandemic.
To break it down further, Figure 12 shows that more than 80 per cent of small enterprises
(less than 50 employees) in Northern Ireland consider it is more important to reduce
costs, while a strategy with the highest proportion of medium-sized enterprises
considering to be more important is introducing new processes (nearly 75 per cent). It
might be attributable to the fact that the more employees an enterprise has, the more
they have to make changes to their processes, in order to comply with social distancing
and other related guidelines. In addition, Figure 13 also indicates that SMEs in service
sectors, which have been affected more severely by the Covid-19 pandemic, have
placed a greater focus on strategies such as reducing costs, entering new markets or
introducing new products or services.
19Figure 11: Change in Northern Ireland SMEs’ priorities due to Covid-19
(percentage of responses)
Source: ERC Business Futures Survey 2020
67.67% 3.16%
Introducing new processes 29.16%
21.79%
Reducing environmental impact 64.19% 14.01%
76.51% 4.62%
Reducing costs 18.86%
68.17% 7.39%
Introducing new digital technologies 24.44%
49.28% 7.44%
Entering new markets 43.28%
50.96% 2.63%
Introduce new products or services 46.40%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
More important Same Less important
Figure 12: Change in Northern Ireland SMEs’ priorities due to Covid-19: Small
firms (Figure 13: Change in Northern Ireland SMEs’ priorities due to Covid-19:
Production versus service sectors
Source: ERC Business Futures Survey 2020
Strategies to be more important
Introducing new processes 69.53%
66.71%
Reducing environmental impact 26.18%
20.20%
Reducing costs 69.54%
79.51%
Introducing new digital technologies 71.97%
66.92%
Entering new markets 27.08%
62.52%
Introduce new products or services 33.08%
57.28%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Production Services
3.5. SMEs’ digital responses to the Covid-19 pandemic
The Fourth Industrial Revolution 7 and new digital technologies are often seen as
enablers of productivity growth. Prior to the COVID-19 pandemic, small businesses,
because of their constrained resources - financial and human - were lagging behind their
larger counterparts in the rates of adoption of digital technologies. There is little doubt,
as we have indicated above, that the COVID-19 crisis has already had an important
impact on digital transformation of SMEs, with many businesses adopting digital
7 The Fourth Industrial Revolution is characterised by a fusion of technologies – such as artificial
intelligence, gene editing, and advanced robotics – that is blurring the lines between the physical,
digital and biological worlds. More information can be found in: DBEIS - Regulation for the Fourth
Industrial Revolution
21technologies they have never used before or increasing the use of previously adopted
technologies.
Figure 14 below displays the change in NI SMEs’ use of technologies due to the Covid-
19 pandemic. Unsurprisingly, the necessity of video conferencing tools such as Zoom or
Microsoft Teams dominated, with more than 95 per cent of our sample confirming that
they have used more of these technologies. Other technologies that have been used
much more due to the Covid-19 pandemic according to our survey data are the Internet
of things; online marketing and social media; and a website to sell goods and services.
Figure 14: Northern Ireland SMEs’ change in their use of digital technologies
(percentage of responses)
Source: ERC Business Futures Survey 2020
Use of digital technologies
57.02%
AI and machine learning 42.98%
61.63%
Augmented and Virtual reality 38.37%
70.93% 2.37%
Internet of things (connected devices) 26.70%
33.39% 4.06%
Computer Aided Design Software (CAD) 62.55%
46.53% 4.40%
Cloud computing solutions 49.07%
95.32% 1.27%
Video conferencing (Teams or Zoom) 3.40%
56.55% 1.92%
Customer Relationship Management 41.53%
24.35% 1.18%
Accounting or HR software 74.47%
70.23% 3.73%
Online marketing and social media 26.04%
68.11% 1.41%
Website to sell goods or services 30.48%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Using more Using less Same as before
Comparing NI SMEs to SMEs in the rest of the UK, Figure 15 below indicates that the
proportions of Northern Ireland SMEs using a broad range of digital technologies, with
adoption among Northern Ireland SMEs tending to be higher than SMEs in the rest of
the UK. This is most stark with regards to the use of a website to sell goods or services,
in which nearly 70 per cent of Northern Ireland SMEs confirmed that they are using this
technology more in response to the Covid-19 pandemic, compared to less than 50 per
cent of SMEs in the rest of the UK.
22Figure 15: Using more of different digital technologies: NI compared to the rest of
the UK
Source: ERC Business Futures Survey 2020
Using more of different digital technologies
Artificial intelligence and machine learning 48.09%
57.02%
Augmented and Virtual reality 53.96%
61.63%
Internet of things (connected devices) 64.22%
70.93%
Computer Aided Design Software (CAD) 26.69%
33.39%
Cloud computing solutions 52.10%
46.53%
Video conferencing such as teams or zoom 95.52%
95.32%
Customer Relationship Management 49.20%
56.55%
Accounting or HR software 21.13%
24.35%
Online marketing and social media 63.69%
70.23%
Website to sell goods or services 48.84%
68.11%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
The rest of UK NI
Obstacles to digitalisation
The Business Futures Survey also explored whether SMEs face any specific obstacles
preventing them from introducing digital solutions. Businesses implementing three or
more digital technologies were asked about the obstacles they had encountered in doing
so, while those SMEs adopting two or fewer digital technologies were asked if there were
factors that would encourage them to increase their digital use. From Figure 16 below, it
can be seen that the main concern for both groups of NI SMEs was digital skills: 43 per
cent of more digitised businesses considered the lack of digital skills as an obstacle, and
39 per cent of less digitised businesses said that better digital skills in the workforce
would encourage them to use more digital technologies. This is in line with the well-
known crucial issue about the lack of sufficient skills in Northern Ireland’s labour market.
For instance, the CBI NI’s 2017 migration survey reported that 96 per cent of firms
23believed that Northern Ireland is facing a growing skills shortage. 8 Compatibility with
existing equipment and potential impacts of cyber risk were rated almost equally
important in terms of obstacles. Interestingly, a significant proportion of firms did not see
any obstacles to their digitisation journey.
Figure 16: Digitalisation obstacles and enablers
Source: ERC Business Futures Survey 2020
Obstacles to adoption of Factors to support
additional digital adoption of additional
technology digital technology
Lack of digital skills in Better digital skills in
43.36% 39.21%
the workforce the workforce
Compatibility with Certainty about
42.52% 24.82%
existing equipment Compatibility with…
Better Broadband
22.73%
Broadband capacity 31.32% capacity
More information
23.31%
Potential impacts of about cyber risk
37.63%
cyber risk
Better information and
22.90%
Lack of funds for advice
31.62%
purchasing technology
Access to more finance 17.91%
Internal resistance to
31.56%
change Better workforce
30.19%
engagement
None of these – no
19.34% None of these – no
obstacles 13.12%
obstacles
None of these - others 1.81% None of these – others 0.00%
0% 10%20%30%40%50% 0% 50%
8 CBI - All Together Better: Accessible Labour: A Necessity for Regional Economic Prosperity
243.6. SMEs’ approach to ‘Net-zero’ target
Another major theme covered in the ERC Business Futures Survey is SMEs’ approach
to ‘Net-zero’ emissions target. The climate emergency is leading many countries to
commit to various targets for reducing their carbon footprint. 9 In 2019, the UK passed a
Net-zero emissions law with targets to be attained by 2050. In one of the first pages of
Energy White Paper published by BEIS in December 2020, the Department outlines the
following: “As nations move out of the shadow of coronavirus and confront the challenge
of climate change with renewed vigour, markets for new green product and services will
spring up round the world. Taking action now will help ensure not just that we end our
contribution to climate change by achieving our target of Net-zero emissions”.
Accordingly, Northern Ireland has been advised by the UK Committee on Climate
Change to cut its carbon emissions by at least 82 per cent by 2050. 10 This is an ambitious
target, especially with the severe impact of the Covid-19 pandemic. In addition, Figure
17 below indicates that the Covid-19 pandemic is not the only obstacle for SMEs in their
environmental protection plan. While more than half of NI SMEs agreed that the
uncertainty due to the Covid-19 crisis is currently the most concerning barrier for them
in achieving their environmental plan, other factors such as the cost of meeting
regulations and standards, or lack of information on low carbon technologies are
identified by more than one third of businesses.
9 Carbon footprint refers to the total amount of greenhouse gases (GHG) produced directly and
indirectly by human activities. It is calculated in tons, as the sum of all emissions of carbon dioxide
(CO2).
10 BBC - NI 'should cut carbon emissions by 82% by 2050'
25Figure 17: Obstacles towards environmental protection for Northern Ireland SMEs
Source: ERC Business Futures Survey 2020
The Coronavirus pandemic 52.07%
Lack of relevant skills 33.43%
Cost of meeting regulations or standards 42.54%
Uncertain demand for low carbon products or… 36.30%
Lack of information on low carbon technologies 36.97%
Difficulties in accessing finance 29.79%
Administrative or legal procedures 25.06%
None of these – no major obstacles 16.40%
None of these – something else 0.58%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
However, despite the Covid-19 pandemic and other obstacles stated strongly above, the
importance of environmental protection is deep-rooted. Even in the midst of the
pandemic more than 80 per cent of SMEs in Northern Ireland agreed that businesses
should spend more on environmental protection (Figure 18). This perspective by
businesses, combined with further government support and clear direction, suggests that
achieving Net-zero emissions by 2050 may be a feasible objective.
Figure 18: Northern Irish SMEs’ attitude toward environmental protection
Source: ERC Business Futures Survey 2020
Businesses should spend more to reduce their impact on
the environment
2.23% 4.30%
Strongly disagree
12.54%
Somewhat disagree
29.39%
Somewhat agree
Strongly agree
51.54%
Don’t know
2627
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